Case study in implementing sap material ledger

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Case Study: Cooper Tire’s SAP Material Ledger Implementation Lessons Learned

Chris Crim, Cooper TireJohannes Le Roux, Jari Consulting

Topics

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• Cooper Tire Strategy and Vision • Implementation Options • Lessons Learned at Cooper Tire• Springboard to SAP Profitability and Cost Management• Summary

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Cooper Tire Strategy and Vision

• Cooper Tire weighed the pros and cons of activating SAP Material Ledger as part of their initial SAP implementation or during a future rollout phase. In this session we’ll cover:• Why Cooper Tire implemented SAP Material Ledger as part of

their initial SAP implementation• Leveraging Material Ledger as a springboard to SAP

Profitability and Cost Management software• Proper master data setup lessons learned• Best practices for configuring Material Ledger for long term

requirements• Find out what Cooper Tire would advise companies

embarking on this process including importance of understanding the impact on finance and non-finance process teams

Cooper Tire Implementation Timeline

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• 2009: Cooper Tire made the decision to implement an ERP system

• Feb. 2010: SAP selected• Aug. – Oct. 2010: Blueprint/requirement gathering

• Requirements gathering process led to decision to implement SAP Material Ledger

• Oct. 2011: 1st Go Live was in the Mickey Thompson division (Sales & Dist.)

• Feb. – Nov. 2013: 2nd Go Live in Cooper US (Mfg, Sales, Dist)• 2014 – 2015: 3rd – 5th go lives in Cooper Mexico, Europe, & Asia

(Mfg, Sales, Dist)

Weighing the Pros and Cons of the SAP Material Ledger

SAP – Material Ledger• Traceability of Actual Material

Cost by product• Purchase Price Variance• BOM Usage Variance• Production Usage Variance• COGS at actual cost

• Traceability of production efficiency by product

• Report Standard & Actual Value of Inventory by product

• Product level Profitability/Gross Margin Reporting without Intercompany Markup

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SAP – Without ML /LEGACY • NO Traceability of Actual Material

Cost by product• Purchase Price Variance• BOM Usage Variance• Production Usage Variance• COGS at actual cost

• NO traceability of production efficiency by product

• NO Report Standard & Actual Value of Inventory by product

• NO Product level Profitability/Gross Margin Reporting without Intercompany Markup

Material Ledger Implementation Basics

• Support externally calculated Double Extension LIFO • Value Inventory in Multiple Currencies• Support Different Global Statutory Reporting requirement by

Company Code (FIFO/LIFO)• Actual Cost by Cost Component by product

• Actual Cost of Material by Product• Actual Cost of Labor by Product• Actual Cost of Depreciation by Product• Actual Cost of Sales• Actual Cost Component

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Material Ledger Implementation Basics (cont.)

• During the accounting period all material movements are valued at a standard cost and recorded by material in the material ledger

• Price Differences (Variances) for each material movement are recorded

• At the end of the period an actual cost (periodic unit price) is calculated for each material though out multiple levels of product produced

• Revaluation of Inventory and Cost of Goods Sold• Distribution of usage variance is allocated to product• Revolution of COGS

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Cost Planning Production Actual Costing Profitability Analysis

Evaluating master data Bill of materials Routing Planned prices Planned activities Planned yield

Recording logistical information for controlling: Consumptions Yield & scrap Purchasing &

supplier invoices Activities & time

recording

Recalculating the value flow using Actual quantity

structure Actual activity

recording Multi-level value flow Actual raw material

prices Consumption

Revaluation Distribution of Usage

variances

Reporting Costs and Contribution Margins Production costs Sales Revenues Actual cost

Component

Dimensions Regions Channels Customers Product Hierarchy

Streamlining the Cost Process

• SAP Material Ledger streamlined their cost process into a fully integrated process as seen below:

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Semifin.material

Distributioncenter Sales

order

Finishedproduct

Rawmaterial

Productionorder

Cost center

Production order

1) Sale of Raw Material to the Production Profit Center within a Legal Entity

2) Sale of Semi-Finished Good to Affiliated Company

3) Use Semi-Finished Good in a production order and add value from activity in a cost center

4) Transfer finished product to distribution center including actual cost

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Streamlining the Cost Process (cont.)

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• Integrate and align cost structure to reduce cost • Provides global unit cost information across plants and legal

entities providing an global transparent view of costs and variances

• Analytical information by scorecards, statutory reports, and performance analysis

• Provide accurate profitability information• Maximizes corporate profitability to grow market capitalization

and shareholder value• Integrate planning with a single model across the enterprise to

improve organizational alignment and financial performance• Provide real-time information quickly

Material Ledger Benefits

Cooper Tire Value Strategy

Cooper Value Strategy Proposal • If we had to do it again, we would use

the following strategy

Currency / Visional

Company code Currency

Legal 10 Group / legal 30Profit Center 32

Cooper Value Strategy • Legal valuation • Legal group valuation• Group valuation without markup

Currency / Visional

Company code Currency

Legal 10 Group / legal 30Group 31

• Why we would propose a different strategy:• Less maintenance – Only two cost roles • Profit center valuation not needed – not using profit center transfer price

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Define Individual Characterisitcs

• You cannot change the currencies, currency types and material ledger types after production startup

Currency and Valuation Profile

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SAP Material Ledger Without Revaluation

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Cooper Implement Material ledger without revaluation

What Cooper did was used the accrual method but report the accrual as part of there inventory value in there balance sheet using an inventory direct posting account

SAP Material Ledger Without Revaluation

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• Cooper implement SAP Material ledger without revaluation• Used the accrual method, but reported the accrual as part of

their inventory value in their balance sheet using an inventory direct posting account

www.sap.com AC530 - Training actual costing/Material ledger

http://www.sap.com/

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SAP Material Ledger Without Revaluation (cont.)

• If you decide not to revaluate your materials with the actual price, the amount which would have been posted to the material stock account is posted to another price difference account using posting key LKW

• It is up to you which account you choose for this posting

Topics

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• Two methods to implement the Material ledger• Activate Material Ledger to track material postings

• Ability to do multi-currency inventory valuation• Recording business transaction • Structuring value chain – direct product only

• Activate Actual Costing• Revaluation of inventory based on actual cost• Multi level variance value chain• Gross margin analysis using both standard and

actual cost

Implementation Options

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Pro ‘s Con’s No migration needed activation of all plant for company at once

High level of Discipline needed when using material ledger

Tracks variances across multiple product levels / plant and company codes

Organization not ready for complicity and discipline needed

Tracks purchase material price variances to finished products on the basis of consumption

Additional training required

Provides historical information on actual cost to facilitate the estimation of new standard costs from initial go-live

Ability to track multiple valuations and/or currencies at the material level

Ability to revaluate inventory on the basis of real cost calculation visibility of variances

Implementation as Part of Initial Phase

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Pro ‘s Con’s

Low level of complexity after initial go-live Migration requirements • Closing of all open production order • Closing of all open purchase order• Conversion and activation by plant

No discipline and restrictions to change cost after initial go-live

Go-love migration long and slow process

Faster closing process after initial go-live No historical information on actual cost to facilitate the estimation of new standard costs after initial go-live

Organization do not have to deal with complicity and discipline after initial go-live

No ability to track multiple valuations and/or currencies at the material level after initial go-live

No ability to tracks purchase material price variances to finished products on the basis of consumption after initial go-live

Implementation After Go live

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Cooper Tire’s Decision to implement Material Ledger

SAP – Material Ledger• Traceability of Actual Material Cost by

product• Purchase Price Variance• BOM Usage Variance• Production Usage Variance• COGS at Actual cost

• Traceability of Production efficiency by product

• Report Standard & Actual Value of Inventory by product

• Product level Profitability/Gross Margin Reporting without Intercompany Markup

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SAP – Without ML /LEGACY • NO Traceability of Actual Material Cost

by product• Purchase Price Variance• BOM Usage Variance• Production Usage Variance

• COGS at Actual cost NO Traceability of Production efficiency by product

• NO Report Standard & Actual Value of Inventory by product

• NO Product level Profitability/Gross Margin Reporting without Intercompany Markup

• Keep all companies with same valuation strategy• Standard vs. moving average in Sales & Distribution

companies • Visibility

• Needed better visibility of variance analysis across production processes

• Better product cost • Global product cost

• 1 time change management• Big Bang (kind of)

• Clean System• No open production order to delete and recreate• No open purchase order to delete and recreate

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Cooper Tire’s Decision to implement Material Ledger

Topics

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Lessons Learned at Cooper Tire

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• Avoid those who only believe Material Ledger is difficult • SAP trainers • Sapphire sessions• Consultants

• Cooper Tire Accounting Managers • Overkill• Activity revaluation• Distribution of usage variances• Trusting the results• Complexity

• Focus on benefits and future capabilities• Look at complexity/timeline/cost implementing ML in future

Results/Gains from Implementing Material Ledger

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• Impact of PPV on specific tire line • Actual cost to support LIFO calculation• Consolidated location to see In/Out transaction by material• See actual cost of inventory by cost component• Inventory valuation visibility without inter-company markup• Ability to see actual product line profitability without

intercompany mark up’s

Results/Negatives from Implementing Material Ledger

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• Massive volume of data• Increased time-to-close by at least 1 day maybe more as more

plants go live• Distribution of usage variances extremely time consuming• Difficult to validate the accuracy of the posting at a high level• Difficult for casual/non-users to comprehend

Material Ledger – Worth the Expense?

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• Yes • Love the level of detail, tons of information!

• No• Takes too long, not worth the effort

• Maybe • See the potential, can’t wait for full rollout to be complete

Cooper Tire Lessons Learned

• Make the final decision early• Quality consultant/implementer• Configure for all potential long term requirements

• Make decision what material will be included• Actual costing • Cost component structure• Understand all ML component• Integration: The impact that Material Ledger has on other

processes/teams• Proper master data setup/conversion • Cutover/client setups• Ongoing validation/maintenance

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Make The Final Decision Early

• Impacts Currency Profiles• Based on setup will impact costing process

• Material Master Defaults• Costing Variants• Resources

• Make sure you have dedicated resources • SME’s & Testing Validators

• Make sure test cycles fit material ledger test requirements

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Quality Consultant/Implementer

• Closely review experience • Check references• Check results of prior ML implementations

• Contract through life of implementation and beyond• Most issue happen 3-4 month after go-live• Training cycle 3-4 months • Process and discipline related • Poor master data• Poor closing processes • Poor monitoring processes

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Configure For All Potential Long Term Requirements

• Configure for Long Term Needs• Currency profiles• Actual cost component split• LIFO / FIFO

• The impact that Material Ledger has on other processes teams• Operations• Inventory Management• Sales & Distribution• Basis

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Cutover/Client Set Up

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• Cutover/Client Set Up• Demand quite system during client start ups • Open/close clients to change default setting on price

determination during material load/extensions• Ensure cutover team understands impact of improper ML

start up• Master Data Setup

• Solid process established prior to go live• Importance of status controls• Product costing prior to material movements

Ongoing Validation/Maintenance

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• Daily/weekly distribution of usage variances• Set up detailed validation template

• Pick a raw material and follow it through a sale• Set up high level validation template

Resources

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• Do not underestimate the effort • Cooper staffing

• One lead business analyst• Included plant accountant in each implementation

• Learn the process• Understand data flow and conversion

• One lead consultant – Make that sure that he/she knows Material Ledger

• Due to conversion, support time ( 3 plus months) and training required it could require additional business analyst

Topics

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Springboard to SAP PCM

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• Integrated transaction and analytics solutions• Totally integrated into transactional processing to PCM• Cooper Tire phase II to integrate with PCM

Profitability Analysis

Cost Planning

Production

Actual Costing

Evaluating master data Bill of materials Routing Planned prices Planned

activities Planned yield



recording



recording Multi-level value

flow Actual raw

material prices Consumption

Revaluation Distribution of

Usage variances

Reporting PROFIT Production costs Sales Revenues Actual cost

Component

Dimensions Regions Channels Customers Product

Hierarchy

Profitability&CostManagement

Reporting Costs and Contribution Margins Being totally integrated into

transactional processing materials ledger makes ideal

place for Calculating the direct cost of product

Transferred to the profitability segment component and uploaded into SAP BOBJ & PCM

Combining the strengths of the controlling components of SAP ERP with SAP BOBJ & PCM

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Profitability Analysis Ideal Staging Area

• Profitability Analysis is an ideal staging area for:• Capturing revenue and sales data at the customer and

product level • Furthermore, having functionality such as the materials

ledger makes the controlling component the ideal place for calculating the actual direct cost of products

• Transferred to the profitability analysis component and then loaded into SAP BusinessObjects Profitability and Cost Management

• Combining the strengths of costing and profitability reporting functionality provided a makes it easier to use the two solutions in tandem, enabling organizations to tailor a cost and profitability reporting solution to match their needs

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SAP Best Practice

• Integrate ECC, business intelligence and enterprise performance management

• SAP BusinessObjects Profitability and Cost Management is the selected solution on the SAP product road map for delivering cost and profitability management

• These tools can also be used for detailed scenario modeling, such as assessing how changing the price of an individual product or the discount given to an individual customer impacts profitability

• SAP uses integration with enterprise performance management delivers true business performance optimization

Topics

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Tracks purchase material price variances to

finished products on the basis of consumption

Provides historical information on Actual Cost to facilitate the

estimation of new Standard Costs

Ability to track multiple valuations and/or currencies

at the material level.

Ability to revaluate inventory on the basis of real cost

calculation

Enables faster and more effective

decision making to management

Tracks variances Across Multiple product levels /

plant and Company codes

Material Ledger Benefits

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CO-CCAMFG

Cost Center

CO-CCAMFG Overead

Cost Center

Activity type

Business Process

Production Orders

Actual CC Allocations

Activity Price revaluation

ABC Template Allocation

WIP

Variances

DUV usage variance

Actual Cost Calculation

CO-PADocumentsActual CostComponent

Split

FI-GLDocumentsRevaluationInventory

COGS

During the month Month end

Month end closing activity

Material Ledger Actual Costing

MMMovements Scrap/Cycle/

Transfer

Material Ledger• Receipts/

Consumption

• Price Differences

• Single Level Price Determination

• Multi level Price Determination

• Closing Entries

PP-PO Production Variances

MM-PO Price Variance

Variances

Actual Cost Flow Integration

Actual Cost Flow Integration

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Springboard to SAP PCM

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• Integrated transaction and analytics solutions• Totally integrated into transactional processing to PCM• Cooper Tire phase II to integrate with PCM

Profitability Analysis

Cost Planning

Production

Actual Costing

Evaluating master data Bill of materials Routing Planned prices Planned

activities Planned yield



recording



recording Multi-level value

flow Actual raw

material prices Consumption

Revaluation Distribution of

Usage variances

Reporting PROFIT Production costs Sales Revenues Actual cost

Component

Dimensions Regions Channels Customers Product

Hierarchy

Profitability&CostManagement

Reporting Costs and Contribution Margins Being totally integrated into

transactional processing materials ledger makes ideal

place for Calculating the direct cost of product

Transferred to the profitability segment component and uploaded into SAP BOBJ & PCM

Combining the strengths of the controlling components of SAP ERP with SAP BOBJ & PCM

Resources

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• SAP Finance• www.sap.com/solutions/business-suite/erp/financials/

featuresfunctions/index.epx• SCN

• www.scn.com• AC530 - Training actual costing/Material ledger• Actuhttp://www.sap-press.com/• al Costing with the SAP Material Ledger - Vanda Reis • 2011 Edition

Key Ideas

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• Avoid those who only believe ML is difficult • Keep all companies with same valuation strategy• Material ledger visibility

• Integrated across multiple level and company codes • Variances included in all reporting • One time change management• Value quantities of inventories with three different valuations

• Legal valuation, group valuation and profit center valuation

Questions

• Now:• Ask questions now for immediate answers

• Later:• Johannes Le Roux - [email protected]• Chris Crim - [email protected]

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Q&A

Disclaimer

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